Most, if not all of us aspire to be the kinds of people that pay their bills on time and have no significant money issues. Unfortunately, sometimes financial pressures, bad decisions, and just plain bad luck can bring things to the point where bankruptcy is the best – even only – solution.
If this should ever happen to you it’s important to know your rights and obligations and to understand the process so that you can get through it with the minimum amount of pain, get discharged, and move on with your life.
Contrary to what you might think, not everything you own is up for grabs when you make the decision to declare bankruptcy. In fact, there are a number of items known as bankruptcy exemptions that no trustee is allowed to seize under any circumstances. Bankruptcy laws are not designed to leave you poverty-stricken. Rather, they are designed to offer a lifeline to honest people who have incurred difficult times, allowing them to get back on their feet.
When you file for bankruptcy, your trustee will be appointed to work with you and help you sort out what specific exemptions apply to you depending on your circumstances. While there are federal guidelines that govern the bankruptcy process for all Canadian bankruptcies the types and financial amounts of bankruptcy exemptions vary from province to province and territory to territory in Canada. In Ontario the exemptions are outlined in the Executions Act.
The exemptions themselves vary by province and territory. Your LT (Licensed Trustee) can help you figure out which exemptions apply to your case and circumstances. This can vary depending on the province and territory you live in. All areas allow you to keep essentials like sufficient food, an adequate amount of clothes, pensions, furnishings, health-related supplies, funds that are specifically secured for retirement, and tools that are necessary for work. Below are some details on the assets you may be able to retain through bankruptcy.
Pensions
Some provinces have exemptions for certain types of pensions, typically company pension plans that are locked-in. In Ontario, pensions are exempt from seizure in a bankruptcy. A type of investment that creditors are also unable to touch is RRSPs, with the exception of contributions that were made in the 12 months prior to filing for bankruptcy. The 12-month contributions, in some cases, are considered assets that can be withdrawn and cashed in to pay your creditors.
Necessary Food and Clothing
This is an exemption in every province but the definition will vary in each. In Ontario, for example, an unlimited amount of necessary clothing for a debtor and their family is exempt.
Household Furnishings and Goods
All provinces and territories have an exemption for this, although there is a fair amount of disparity here depending on where you reside. Ontario has by far the most generous exemption of $13,150.00. Remember this is on the current value of the items and not the value at the time they were purchased.
Tools and Equipment
Vocational tools and equipment that are necessary for you to make a living are exempt in all provinces and territories but there is a significant range in the dollar value amounts. In Ontario this exemption if $11,300.00.
Motor Vehicles
If bankrupt in Ontario, you are allowed an exemption of one motor vehicle worth up to $6,600. If there are no liens on the vehicle and its current value is deemed to be more than $6,600 you can still keep the car by paying the trustee, for the benefit of your creditors, the difference between the value and the exemption. The rules are essentially the same everywhere, though the dollar amounts will vary.
Medical Devices and Equipment
All medical devices and equipment deemed necessities are completely exempt in all provinces and territories.
Farm Property
This one will apply to a relatively small number of people, as according to the last census, only 2% of Canadians live on farms. However, others may own farm property that is worked by someone else while the owner resides elsewhere. Any exemption for farm property will differ from province to province. In Ontario this exemption is $29,100.00.
Wages and Salary
Filing for bankruptcy stops creditors from getting to your wages. However, if your income is above a certain threshold, you will have to make surplus income payments during the bankruptcy process.
Home Equity
Depending how much equity you have in your home, you may not have to part with it when you file for bankruptcy. In Ontario, if your equity in your home is less than $10,000, then it is exempt from seizure. Similar to motors vehicles, if your equity is above the exemption limit you can make an agreement to repurchase this equity from your trustee for the benefit of your creditors. Alternatively, the trustee has other options you can explore, such as a consumer proposal, if you decide bankruptcy is not the right fit for your situation.
Bankruptcy is a last resort but it need not be a shattering experience. As stated earlier, the goal is not to shame you but to provide you with financial relief and a fresh start so you can regroup and get on with your life.
For more information about bankruptcy, call Kevin Thatcher toll-free at 1-866-719-8547 or contact us here.